The Private Sector's Role in Defense Production Industry in India *

ABSTRACT

India's defence expenditure is rising due to large-scale imports of military equipment. The target of attaining 70% self-reliance in defence production by 2005 had not been achieved to even half that extent as of early 2007. Since 2001, the involvement of the private sector has been permitted in defense production. Committee reports and suggestions by industry bodies seek an active role for the private sector in defence production, to curtail imports and achieve greater indigenization.

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Introduction

India is the third largest importer of defense hardware in the world, and is one of the top ten countries in terms of defense expenditure. During 2004-2007, India spent $10.5 billion on importing defense equipment, which made it the largest arms importer in the developing world. It is estimated that the country's imports of defense equipment will reach $30 billion by the year 2012. The growing importance of the defense sector in India is evident from the fact that the budget estimate for this sector for the year 2006-2007 was US$ 20 billion, which was 5% more than that in the previous year's budget. Defense expenditure is expected to grow at a rate of 7% annually between 2008 and 2013.

In 2006-2007, India's military expenditure amounted to roughly two percent of its GDP, even after excluding the expenses on defense pensions, paramilitary forces, and the defense ministry's own spending.

In 1991, the Defense Research and Development Organization (DRDO) of India had targeted achieving 70% indigenization in defense production by 2005. Toward this end, greater participation of the private sector in defense production was sought...
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